£20m bid to end coffee breaks

Louise Armitstead

STARBUCKS has taken the "unprecedented" step of pledging to pay £20 million ($A30 million) company tax, even if it makes no profit, only for the move to appear to backfire and fuel the fiasco surrounding its British operation.

In trying to end the pressure on the coffee chain, the US company dramatically broke off talks with Revenue and Customs to offer to "pay or pre-pay somewhere in the range of £10 million in each of the next two years".

Starbucks hopes its £20 million pledge will take the heat off. Photo: Reuters

Starbucks has paid just £8.5 million company tax in 14 years, despite UK sales of £3 billion, a tax rate below 1 per cent.

Kris Engskov, managing director of Starbucks UK, admitted that the payment plan was an "unprecedented commitment" and that he had not yet "shared" the idea with Revenue and Customs.

While keeping its tax arrangements unchanged, Starbucks said it would "not claim deductions" it has been taking for royalties to its Amsterdam office, inter-company loans, capital allowances and coffee purchases.

Starbucks was taking action to pay company tax ''by not taking those deductions any longer", he said, adding that the company had been shocked by the "emotional" reaction of its customers to the tax row.

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But tax experts described the company's payment proposals as "commercially gobsmacking", while politicians warned that the move underscored the view that the UK's tax system was being treated as a "complete joke". Even tax campaigners dismissed the move as "just a desperate attempt'' to deflect public pressure.

Patrick Stevens, president of the Chartered Institute of Taxation, said: ''In commercial terms, it is making a gift to the government, not paying tax. It's gobsmacking, really."

Stephen Williams, Treasury spokesman for the Liberal Democrats, said: "It is extraordinary. People have been joking that some of these multinationals seem to think that paying tax is voluntary. Well, Starbucks have just confirmed the joke, really. Tax is something that is a legal obligation that you should pay. It's not a charitable donation in order to gain brand value."

A department spokesman said: "Corporation tax is not a voluntary tax. Revenue and Customs will challenge, through the courts if necessary, any structures or tax payments that do not comply with UK tax law."

Margaret Hodge, chairman of the Public Affairs Committee, said Starbucks had taken a "first step in the right direction" and she hoped Google and Amazon would "follow suit".